Unfair Trade Practices

The Meaning of Falsity in Misrepresentation Cases

When a consumer sues a product manufacturer over an allegedly false advertisement, what must the consumer allege to state a claim that the advertisement is false?

A recent decision by the U.S. Court of Appeals for the Fourth Circuit, In re GNC Corp., addresses this question.

Glucosamine and Chondroitin

The GNC case involves representations about supplements sold by GNC and Rite Aid. The supplements contain glucosamine and chondroitin. The proposed class representatives were eight consumers who bought these supplements.

According to the complaint, GNC and Rite Aid falsely represented that the supplements promote joint mobility and flexibility, protect joints from the wear and tear of exercise, and have other benefits. The complaint refers to scientific studies that say that glucosamine and chondroitin are no more effective than a placebo in treating the symptoms of arthritis.

These allegations were the basis for multiple claims, including alleged violations of state statutes (from states other than North Carolina) that generally parallel N.C. Gen. Stat. § 75-1.1.

Claims Dismissed

GNC and Rite Aid successfully moved to dismiss the complaint. They argued, and the district court agreed, that the complaint did not plausibly allege that the marketing statements in question were false.

The district court reached this conclusion even though the complaint cited two studies that found that glucosamine and chondroitin do not promote joint health. These studies were irreconcilable with the text of the ads for the supplements. Either the studies are correct and the ads are wrong, or the studies are wrong and the advertisements are correct.

At this point, you might be asking, “Under these circumstances, wasn’t discovery needed to figure out whether the ads are indeed false?”

That’s the question that the plaintiffs took to the Fourth Circuit.

Falsity Distinguished from Deception

The Fourth Circuit affirmed the dismissal of the complaint. In its opinion, the court distinguished between allegations that an ad is false and allegations that an ad is misleading.

In making this distinction, the Fourth Circuit relied on the federal Lanham Act. We have written before about how the Lanham Act compares to state unfair-trade-practices statutes like N.C. Gen. Stat. § 75-1.1.

As the Fourth Circuit explained, a claim under the Lanham Act can allege that a representation is literally false or, alternatively, can allege that the representation is true but misleading. In GNC, the complaint alleged only the first of these—that GNC’s and Rite Aid’s representations were literally false. All of the claims, including the state unfair-trade-practices claims, depended on whether the complaint plausibly alleged the falsity of the ads.

What, then, does falsity require?

The GNC court held that a representation is false only if no reasonable scientist would agree with the challenged representations. It is not enough, the Fourth Circuit wrote, to allege that most qualified scientific experts agree that glucosamine and chondroitin are ineffective. As long as some qualified experts would say that the challenged representation is true, the court held, the representation does not qualify as literally false.

The plaintiffs had argued that this definition of falsity would chill consumer claims like the ones in GNC. Imagine, for example, that a lawyer challenges ads about the efficacy of a product. The lawyer does a literature search and finds only studies that say that the product has no benefits. The lawyer might then sue the manufacturer for making a false statement to consumers. What would happen, though, if the manufacturer’s lawyer produces even one study that backs up the advertisement? The plaintiff’s lawyer might be looking over her shoulder for a Rule 11 motion.

The Fourth Circuit expressly addressed this concern. The court wrote that lawyers should have no fear of Rule 11 sanctions in this setting as long as the lawyers do sufficient due diligence before filing a complaint. Will plaintiffs’ lawyers take comfort from this statement? We welcome your reactions in the comments section.

More Pleading Problems

The Fourth Circuit also stated an alternative basis for affirmance: the plaintiffs had not alleged that the supplements “as a whole” fail to promote joint comfort, health, and flexibility. Alleging that two ingredients in the supplements are ineffective was not enough. Instead, the court wrote, the claim had to allege that all the active ingredients in the supplements were ineffective. Absent that allegation, the claim did not plausibly allege that GNC’s and Rite Aid’s ads were literally false.

This alternative ground creates another hurdle for a plaintiff who wants to claim that a manufacturer’s representation to consumers is false.

Proving Falsity After GNC

Are these hurdles too high? Some commentators think so.

Professor Rebecca Tushnet of Georgetown Law, for example, has filed an amicus brief in support of the plaintiffs’ petition for rehearing en banc. In that brief, she argues that the standards in GNC “cannot be an appropriate requirement to survive a motion to dismiss.” She goes on to say that a court cannot decide whether a representation is true or false unless it reviews each side’s evidence. She cites a string of cases that have held that a Lanham Act claim could proceed even when the defendant had some evidence that a representation was true.

Although the GNC decision has generated considerable disagreement, one point is undisputed: the decision does not address claims that an advertisement is misleading. As the Fourth Circuit itself pointed out, the standards for whether a representation is misleading are different from the standards for literal falsity. In addition, the detailed standards that govern deception claims under state unfair-trade-practices statutes vary, to some degree, from state to state.

Putative class actions that allege economic losses from statements about food products or health products are already remarkably common. Decisions like GNC might lead plaintiffs’ lawyers to steer clear of literal-falsity claims under the Lanham Act and focus on state-law claims that ads are misleading, and thus deceptive under state-law standards.

When plaintiffs make these claims under North Carolina law, of course, they will need to show that they actually and reasonably relied on the statements they challenge. Showing actual and reasonable reliance might be a problem for some plaintiffs (or at least for some absent class members), who might not have paid any attention to the ads or labels that underlie their claims.

In short, GNC adds a new wrinkle to an already active and complex form of litigation. We welcome your comments on the impact of the decision.